Another market collapses

The real reaction to today’s Fed meeting will likely come tomorrow.

All eyes and ears were on Chairman Powell today. Most notably, he and the markets were obviously uncomfortable with the press conference, but it wasn’t until it was over that the markets all drifted in their respective directions. Gold rose, stocks fell, bonds rallied and oil continued to collapse – quietly.

With the exception of Crude Oil, movements in the above markets were muted but clearly directional for the close. Often the bigger reaction to the Fed comes the day after the news. Now Thursday starts with some very volatile looking charts.

Regional banks will undoubtedly draw the most attention on Thursday as they continue to slide further on market news that PacWest Bancorp (PACW) is “assessing strategic options” and its shares are down over 50% in after-hours trading. However, there are two other areas of the markets that you should pay special attention to.

First, there is crude oil. The ETF, USO, not only had its biggest two-day decline since July 2022, but is also trading below a very important level. The red line in the chart above represents the January low of 2023.

At MarketGauge, we treat the January low as an important psychological level in any market, and USO has historically seen large declines when trading below this level. If you are interested in this concept, look at the price movements in 2018, 2017, 2015 and 2014 around the January low price level for each year.

USO not only broke the January low, but also moved below the 23-month moving average. If you’ve been listening to Mish lately, you’ve no doubt heard her explain that breaking this moving average is very bearish.

A collapse in crude oil prices can help consumers and inflation, but it will also project a lack of confidence in the strength of the economy and hurt corporate profits in the energy sector. All in all, a major move lower will weigh on the broader market in the short-term.

Second, I recently explained why SMH was in a precariously bearish state at Misch’s Daily. As you can see in the chart below, since this article, SMH has dipped below its 50-day moving average and then recovered to it.

The ETF finds itself in the same very precarious position again. The MG Leadership line is bearish (blue line under red) and Real Motion also confirms the bearish break of the 50-day moving average.

Historically, SPY and QQQ have a hard time recovering when SMH is down versus the MG Leadership indicator. If SMH breaks lower, the price pattern and indicators suggest the breakdown will continue. This would weigh heavily on the general market. If SMH trades back above $250, this bearish warning will be negated.

Keep an eye on SMH.

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2nd-5th May: StockCharts TV Market Outlook

• S&P 500 (SPY): 23 months MA 420.
• Russell 2000 (IWM): 170 support, 180 resistance.
• Dow (DIA): About the 23-month MA-only Index.
• Nasdaq (QQQ): 329 the 23 month MA.
• Regional Banks (KRE): 43 now decisive resistance.
• Semiconductor (SMH): 246 the 23 month MA.
• Transport (IYT): 202-240 greatest selection to watch.
• Biotechnology (IBB): 121-135 area that can be observed on the monthly charts.
• Retail (XRT): Trading range of 56-75 to break one way or another.

Geoff Bysshe

MarketGauge.com

president